Thursday, November 19, 2009

What Makes Demand Vary More? Cheese Consumption or Exports/Imports

In the November 15 post, the variation in per capita consumption of cheese was discussed. The variation from the long term trend in cheese consumption was caused by higher milk prices and was the largest variation in nearly 40 years.

From peak to low, the variation was 2.7% from the trend line.

In this post, we'll compare that variation in demand with the fluctuations in demand caused by variations in imports and exports. There are only two factors that make up the demand for U.S. cheese, U.S. consumption and imports/exports.

Imports have seen a 3.25% variation in the last 2 1/2 years. This percentage is based on the same scale as the per capita cheese consumption; percent of consumption. Therefore, the 3.25% variation is exactly comparible to the 2.7% shown above for variation in consumption.

When we look at exports, also measuring variation as a percent of consumption, we see another 2% variation.

The combined impact of variations in imports and export is over 5%, nearly double the variation in U.S. consumer demand.

The conclusion we can draw from this is that the biggest impact on the demand for U.S. cheese comes from the U.S. ability to compete for cheese sales on the global markets with the purpose of increasing exports and decreasing imports. The ability to compete successfully for global cheese sales is the key to demand and increased demand has a positive price impact on U.S. produced cheese. Effort needs to be focused in this area for long term success.

In the next post we'll look the the milk supply side. How many cows will there be in 2010 and how much milk will be produced?